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Universal Banking - Answer For The Best Banking Design?

1.1 INTRODUCTION
In recent years, universal banking has been growing its popularity in Indonesia. Mandiri Bank, for example, has taken strategy to become Indonesia's universal bank; this bank has also initiated to develop an integrated financial risk system in terms of sounding financial performance and increasing shareholder value. In Germany, and most developed countries in Europe, universal banks have initiated its operations since nineteen century. There is mounting evidence that in those countries, universal banks have taken an important part in the development of real sectors and the financial system. In those countries, the growing numbers of universal banking practices are really supported by the regulation of central of bank.
Despite, in The United States, they are strict to regulate universal banks by blocking commercial banks from engaging in securities and stock markets practices. They argued that the practice of universal banking might be harmful for the financial system. ((Boyd et.al, 1998) cited in Cheang, 2004) The "risk" might be the key reason why the central bank of The U.S is worried about the universal banking system. Since, if the central of bank allowed banks to adjust their operation to be universal banks, the relationship among, banks, financial and stock markets would be closer. Consequently, this would give an uncertainty to the banks condition and performance. For example, if there were a disaster in stock market, banks would get problems in their financial positions. Thus, they would tend to be insolvent.
In addition universal banks would also threaten the market share of other specialized institutions, because more customers would choose universal banks that offer more option to their investment. Hence, more specialized institutions are likely to be ruined in the U.S financial industry.
One majoring factor, which is triggering a bank to be universal bank, is to increase the profit by enlarging their market share. According to João A. C. Santos (1998) universal bank itself can be defined as the financial institution, which enlarges its service range in terms of offering a variety of financial products and services in one site. Thus, by operating universal banking, banks could get a greater opportunity to expand to another financial area, such as : financial securities, insurance, hedge funds and etc.
Although the trend of banks has recently tended to universal banks, it is undoubtedly true that universal banks would also face further risks because a wide range of financial services is strongly associated with increasing risks and escalating monitoring costs. These are the major concerns why banks have to implement more advance technology in terms of financial risk management. Moreover, the practices of universal banks would cause significant risks to economy's payment system. Since, the operation of universal banks connects closely to the financial and stock markets that are very fluctuate in a short term.
To win in the tight competition among financial institutions, banks have to alter their maneuver to lead in the market. Universal bank could be the wise choice for the bank manager, because they can attract more customers with a wide range of services. Furthermore, by altering their operation to the universal banking system, banks would get benefits from the efficiency and economies of scale.
In order to understand about the universal banking practices, this paper would examine the exclusive matters, which related to the risks and benefits in a universal bank. Moreover, this paper would also focus the whole impact of this institution to the financial system and the economy as a whole.
1.2 PROFITS AND COSTS IN UNIVERSAL BANKING: IMPLICATIONS FOR INDIVIDUAL BANKS
General problem related to financial intermediation, include universal banks and another type of banks, is about asymmetric information . It is the main problem that causes costs to increase and influence the performance of financial institutions. In Universal banks, the problems that would increase are slightly different with specialized banks; they are similar in that they should cope the risks problem associated with their financial position. Although, in universal banks, the risks are more bigger due to the wide range of financial instruments that they organized. Therefore, banks have to increase their spending on monitoring costs that are more complicated than specialized institutions or conventional banks.
Possible answer why more banks sacrifice to the escalating risks and transform it operation into the universal banking is that they want to compete and expand their market share, in order to seek a greater opportunity profits by serving more choices to their customers. Many banks has experienced a great performance after they alter their operation, the main concerns are that they could reach better economies of scale which can reduce the amount of spending in operational costs and also a greater opportunity to get more profits. The research finding which was conducted by Vender, R. (2002, cited in Cheang, 2004) about the efficiency of revenue in financial conglomerates and the level of both profit and cost in universal banking, has proved that both financial conglomerates and universal banking contain good performance in several indicators of bank profitability. His finding also suggests that the sustained expansion of financial conglomerates and universal banking practices may increase efficiency in the financial system.
This opinion is strengthen by another experts, like : George Rich and Christian Walter (1993). They state that universal banks which posse benefits over specialized institutions, are able to take advantage of reduction in the average cost of production and scope in banking. It is essential for banks that operate on a international level and in order to fulfill customer needs with a variety of financial services. They also mention a classic example how universal banks in some countries, such as : Switzerland, Germany and more European countries has experienced benefits by operating universal banking. In addition, they also state that the fear if universal bank would threaten specialized institutions has not proven. In Switzerland and Germany, for example, specialized institutions could achieve a better improvement in terms of cooperating with big banks. Universal banks are one of potential market channel which can sell their products directly to the customers, so specialized institutions also get additional return due to the increases in the number of universal banks. Therefore, this proves that universal banks do not threat other institutions; in fact, they support specialized institutions to market their products.
According to Fohlin, universal banking would lead to a bank's concentration due to the increases the number of branch. Based on Germany's experience, such branching-based expansion has led to the efficiency in banking because it could increase economies of scale in advertising and marketing, and open an enormous opportunity to enhance diversification and steadiness for banks.
A universal bank has unique position to tackle asymmetric information. As stated by Joao A. C. Santos (1998), that a universal bank has potential benefits on the reduction of agency cost and acquires profits due to information advantages. Although in other sides, universal banking also face problems related to the cost, conflict of interest and safety and soundness. But the default risk, which is generally happened in financial intermediation, would decrease substantially because universal banks are easier to control over their customers. Most of lenders in universal banks are their customers, so they can understand about the capacity of the customers from the information that they gather.

Nicholas Cheang (2004) also points out how universal banks could reduce a crucial problem in financial institution, asymmetric information. He argued that they could preserve a close relationship with their borrowers, by gathering more relevant information to make an important decision for investment. Their advantageous positions also vital to optimize the distribution of fund allocation, because banks have already known which investment that would give more margins to them. So, they don't need to worry too much about the risk.

When an Offshore Bank Fails

Introduction - What we are going to do is describe the legal and mechanical process relating to offshore bank failures. We will discuss what leads up to them, what happens if they fail, and how do the depositors get their money back. The terms and scenarios we depict are generally what happens in the world of offshore banking. In some jurisdictions the terminology and procedures may be slightly different but the general way things proceed will be in line with the scenarios depicted in this article.
Offshore Banks - A brief definition of this term is in order. These are banks that are located in various countries around the world many being in Caribbean Island Nations. These banks have a license that enables them to only do business with people and entities (trusts and corporations) that are not from that country. The offshore jurisdiction does not trust the offshore bank to accept deposits from its citizens or corporation filed in that country. This right away should tell a moderately astute investor that he or she is perhaps not exercising the correct amount of caution when it comes to selecting a bank and an offshore jurisdiction. So the first warning sign is be careful of offshore banking licenses. A bank can be in an offshore jurisdiction and not have an offshore banking license, instead be a regularly licensed bank. Offshore bank licenses can be had in some jurisdictions with as little as a $50,000 deposit with the country issuing the license. Usually this amount is never more than $500,000 and many countries require less. As a point of comparison a regular bank operating in Panama is required to post $10,000,000 cash deposit and the owners go through a rigorous background investigation.
Bank Failure - This is a term relating to the offshore bank being unable to fulfill the demand for funds from their depositors. This can occur for a number of reasons, some bad and some not so bad. The offshore bank may have been found to be below its protective ratios and the government bank auditors or financial ministry may decide to shut the bank down in terms of money going out for a limited period of time to see if the bank can return their ratios quickly to an acceptable level. In the event the ratios return to an acceptable level the bank operation resumes normally and the depositors may not even know anything occurred.

Complaints - The way offshore bank failures generally start is with complaints to the licensing authority of the country where the bank is located stating that requests to withdraw funds are not being met by the bank. To document this the account holder generally retains legal counsel in the country where the offshore bank is located and files a formal demand for the funds to bank with a very short deadline. When this demand is not met the law firm will file a formal complaint to the offshore bank licensing authority who will generally conduct an investigation. They may have their own auditors or hire an independent team of auditors to go through the offshore bank records. They will look to see if there are any loans on the books that do not meet the guidelines for lending such as writing uncollateralized loans is usually considered an offense. Loans to the principals of the bank are another red flag. Real estate acquisitions like mansions on the island where the offshore bank is located for the bank executives to live in is another red flag as well. Usually without loans the bank would not fail to meet its ratios. When these loans go bad and there is no collateral to go after then the banks get into trouble. The complaint process is possibly the only way the government is going to know their offshore bank is in trouble and by then it may be too late, but it may not be too late. Remember we are talking about offshore banks here, not regularly licensed regular banks which are audited and watched way more closely by the government and usually by a different government agency than the agency supervising offshore banks. We as a Panama Law firm do not introduce clients to offshore banks which should tell you something.
Loss of Correspondent Bank - Sometimes the offshore bank has just lost one or more of its correspondent banks and can not execute wire transfers until it replaces the correspondent with another correspondent bank which may take several weeks. When the complaints hit the government they will investigate, see that the funds are in place and allow the offshore bank a reasonable period of time to secure another correspondent bank, checking with them for progress reports. This is a not so bad problem that will only serve to scare and inconvenience the depositors.
Offshore Bank Receivership - This is a process whereby the government agency that licenses the offshore bank takes over the offshore bank to control its operation with an eye towards saving the bank. Sometimes they are successful and well sometimes not. Often a team of professionals from a large auditing or accounting firm are brought in. Receivership practices can frequently mean that a percentage of your funds will be unavailable for withdrawal for sometime. This is to prevent a run on the offshore bank which would for sure topple it and thus cost the depositors substantial losses. You may be only able to take out say 25% of your funds. What can often happen is the depositors lose faith and take as much money out as they can and avoid putting in any more money. This usually results in the offshore bank failing totally and being shut down.

Suing the Offshore Bank - What often happens in these offshore bank receivership scenarios is some depositors get scared and act jumpy and sue the bank. The lawsuits generally involve having the court encumber or tie up an amount equal to their deposit. To accomplish this the depositors generally have to resort to deceit or twisting the truth minimally, to make the court think they were not ordinary depositors or the amount in question consisted of funds to be handled in a special exceptional manner. The way the depositors are playing their hand is get the court to hold my money before the bank goes down completely and then my funds get mixed in with all the depositors in the fracas. If one files such a lawsuit they are generally excluded from filing claims as regular creditors (depositors) of the bank in the event of a liquidation and if they lose their lawsuit (an expected occurrence if based on fraud or deceit) they can lose all. Usually several depositors will file such lawsuits if there is any official action taken against the offshore bank and this could push the offshore bank into greater difficulty and if there is a bank liquidation it will be a most complex one with a lot of depositors funds eaten up in legal fees.

Is My Money Safe? On The Soundness Of Our Banks

Banks are institutions wherein miracles happen regularly. We rarely entrust our money to anyone but ourselves - and our banks. Despite a very chequered history of mismanagement, corruption, false promises and representations, delusions and behavioural inconsistency - banks still succeed to motivate us to give them our money. Partly it is the feeling that there is safety in numbers. The fashionable term today is "moral hazard". The implicit guarantees of the state and of other financial institutions moves us to take risks which we would, otherwise, have avoided. Partly it is the sophistication of the banks in marketing and promoting themselves and their products. Glossy brochures, professional computer and video presentations and vast, shrine-like, real estate complexes all serve to enhance the image of the banks as the temples of the new religion of money.
But what is behind all this? How can we judge the soundness of our banks? In other words, how can we tell if our money is safely tucked away in a safe haven?
The reflex is to go to the bank's balance sheets. Banks and balance sheets have been both invented in their modern form in the 15th century. A balance sheet, coupled with other financial statements is supposed to provide us with a true and full picture of the health of the bank, its past and its long-term prospects. The surprising thing is that - despite common opinion - it does. The less surprising element is that it is rather useless unless you know how to read it.
Financial Statements (Income - aka Profit and Loss - Statement, Cash Flow Statement and Balance Sheet) come in many forms. Sometimes they conform to Western accounting standards (the Generally Accepted Accounting Principles, GAAP, or the less rigorous and more fuzzily worded International Accounting Standards, IAS). Otherwise, they conform to local accounting standards, which often leave a lot to be desired. Still, you should look for banks, which make their updated financial reports available to you. The best choice would be a bank that is audited by one of the Big Six Western accounting firms and makes its audit reports publicly available. Such audited financial statements should consolidate the financial results of the bank with the financial results of its subsidiaries or associated companies. A lot often hides in those corners of corporate ownership.

Banks are rated by independent agencies. The most famous and most reliable of the lot is Fitch-IBCA. Another one is Thomson BankWatch-BREE. These agencies assign letter and number combinations to the banks, that reflect their stability. Most agencies differentiate the short term from the long term prospects of the banking institution rated. Some of them even study (and rate) issues, such as the legality of the operations of the bank (legal rating). Ostensibly, all a concerned person has to do, therefore, is to step up to the bank manager, muster courage and ask for the bank's rating. Unfortunately, life is more complicated than rating agencies would like us to believe. They base themselves mostly on the financial results of the bank rated, as a reliable gauge of its financial strength or financial profile. Nothing is further from the truth.
Admittedly, the financial results do contain a few important facts. But one has to look beyond the naked figures to get the real - often much less encouraging - picture.
Consider the thorny issue of exchange rates. Financial statements are calculated (sometimes stated in USD in addition to the local currency) using the exchange rate prevailing on the 31st of December of the fiscal year (to which the statements refer). In a country with a volatile domestic currency this would tend to completely distort the true picture. This is especially true if a big chunk of the activity preceded this arbitrary date. The same applies to financial statements, which were not inflation-adjusted in high inflation countries. The statements will look inflated and even reflect profits where heavy losses were incurred. "Average amounts" accounting (which makes use of average exchange rates throughout the year) is even more misleading. The only way to truly reflect reality is if the bank were to keep two sets of accounts: one in the local currency and one in USD (or in some other currency of reference). Otherwise, fictitious growth in the asset base (due to inflation or currency fluctuations) could result.
Another example: in many countries, changes in regulations can greatly effect the financial statements of a bank. In 1996, in Russia, to take an example, the Bank of Russia changed the algorithm for calculating an important banking ratio (the capital to risk weighted assets ratio). Unless a Russian bank restated its previous financial statements accordingly, a sharp change in profitability appeared from nowhere.

The net assets themselves are always misstated: the figure refers to the situation on 31/12. A 48-hour loan given to a collaborating firm can inflate the asset base on the crucial date. This misrepresentation is only mildly ameliorated by the introduction of an "average assets" calculus. Moreover, some of the assets can be interest earning and performing - others, non-performing. The maturity distribution of the assets is also of prime importance. If most of the bank's assets can be withdrawn by its clients on a very short notice (on demand) - it can swiftly find itself in trouble with a run on its assets leading to insolvency.
Another oft-used figure is the net income of the bank. It is important to distinguish interest income from non-interest income. In an open, sophisticated credit market, the income from interest differentials should be minimal and reflect the risk plus a reasonable component of income to the bank. But in many countries (Japan, Russia) the government subsidizes banks by lending to them money cheaply (through the Central Bank or through bonds). The banks then proceed to lend the cheap funds at exorbitant rates to their customers, thus reaping enormous interest income. In many countries the income from government securities is tax free, which represents another form of subsidy. A high income from interest is a sign of weakness, not of health, here today, there tomorrow. The preferred indicator should be income from operations (fees, commissions and other charges).

There are a few key ratios to observe. A relevant question is whether the bank is accredited with international banking agencies. The latter issue regulatory capital requirements and other defined ratios. Compliance with these demands is a minimum in the absence of which, the bank should be regarded as positively dangerous.
The return on the bank's equity (ROE) is the net income divided by its average equity. The return on the bank's assets (ROA) is its net income divided by its average assets. The (tier 1 or total) capital divided by the bank's risk weighted assets - a measure of the bank's capital adequacy. Most banks follow the provisions of the Basel Accord as set by the Basel Committee of Bank Supervision (also known as the G10). This could be misleading because the Accord is ill equipped to deal with risks associated with emerging markets, where default rates of 33% and more are the norm. Finally, there is the common stock to total assets ratio. But ratios are not cure-alls. Inasmuch as the quantities that comprise them can be toyed with - they can be subject to manipulation and distortion. It is true that it is better to have high ratios than low ones. High ratios are indicative of a bank's underlying strength of reserves and provisions and, thereby, of its ability to expand its business. A strong bank can also participate in various programs, offerings and auctions of the Central Bank or of the Ministry of Finance. The more of the bank's earnings are retained in the bank and not distributed as profits to its shareholders - the better these ratios and the bank's resilience to credit risks. Still, these ratios should be taken with more than a grain of salt. Not even the bank's profit margin (the ratio of net income to total income) or its asset utilization coefficient (the ratio of income to average assets) should be relied upon. They could be the result of hidden subsidies by the government and management misjudgement or understatement of credit risks.

Royal Entrepreneurship - The Case of Royal Bank Zimbabwe Ltd Formation

The deregulation of the financial services in the late 1990s resulted in an explosion of entrepreneurial activity leading to the formation of banking institutions. This chapter presents a case study of Royal Bank Zimbabwe, tracing its origins, establishment, and the challenges that the founders faced on the journey. The Bank was established in 2002 but compulsorily amalgamated into another financial institution at the behest of the Reserve Bank of Zimbabwe in January 2005.
Entrepreneurial Origins
Any entrepreneurial venture originates in the mind of the entrepreneur. As Stephen Covey states in The 7 Habits of Highly Effective People, all things are created twice. Royal Bank was created first in the mind of Jeffrey Mzwimbi, the founder, and was thus shaped by his experiences and philosophy.
Jeff Mzwimbi grew up in the high density suburb of Highfield, Harare. On completion of his Advanced Level he secured a place at the University of Botswana. However he decided against the academic route at that time since his family faced financial challenges in terms of his tuition. He therefore opted to join the work force. In 1977 he was offered a job in Barclays Bank as one of the first blacks to penetrate that industry. At that time the banking industry, which had been the preserve of whites, was opening up to blacks. Barclays had a new General Manager, John Mudd, who had been involved in the Africanisation of Barclays Bank Nigeria. On his secondment to Zimbabwe he embarked on the inclusion of blacks into the bank. Mzwimbi's first placement with Barclays was in the small farming town of Chegutu.
In 1981, a year after Independence, Jeff moved to Syfrets Merchant Bank. Mzwimbi, together with Simba Durajadi and Rindai Jaravaza, were the first black bankers to break into merchant banking department. He rose through the ranks until he was transferred to the head office of Zimbank - the principal shareholder of Syfrets - where he headed the international division until 1989.
The United Nations co-opted him as an advisor to the Reserve Bank in Burundi and thereafter, having been pleased by his performance, appointed him a consultant in 1990. In this capacity he advised on the launch of the PTA Bank travellers' cheques. After the consultancy project the bank appointed him to head the implementation of the programme. He once again excelled and rose to become the Director of Trade Finance with a mandate of advising the bank on ways to improve trade among member states. The member states were considering issues of a common currency and common market in line with the European model. Because the IFC and World Bank had unsuccessfully sunk gigantic sums of funds into development in the region, they were advocating a move from development finance to trade finance. Consequently PTA Bank, though predominantly a development bank, created a trade finance department. To craft a strategy for trade finance at a regional level, Mzwimbi and his team visited Panama where the Central Americans had created a trade finance institution. They studied its models and used it as a basis to craft the PTA's own strategy.
Mzwimbi returned to Zimbabwe at the conclusion of his contract. He weighed his options. He could rejoin Barclays Bank, but recent developments presented another option. At that time Nick Vingirai had just returned home after successfully launching a discount house in Ghana. Vingirai, inspired by his Ghanaian experience, established Intermarket Discount House as the first indigenous financial institution. A few years later NMB was set up with William Nyemba, Francis Zimuto and James Mushore being on the ground while one of the major forces behind the bank, Julias Makoni, was still outside the country. Makoni had just moved from IFC to Bankers' Trust, to facilitate his ownership of a financial institution. Inspired by fellow bankers, a dream took shape in Mzwimbi's mind. Why become an employee when he could become a bank owner? After all by this time he had valuable international experience.
The above experience shows how the entrepreneurial dream can originate from viewing the successes of others like you. The valuable experiences acquired by Mzwimbi would be critical on the entrepreneurial journey. An entrepreneurial idea builds on the experiences of the entrepreneur.
First Attempts
In 1990 Jeff Mzwimbi was approached by Nick Vingirai, who was then Chairman of the newly resuscitated CBZ, for the CEO position. Mzwimbi turned down the offer since he still had some contractual obligations. The post was later offered to Gideon Gono, the current RBZ governor.

Around 1994, Julias Makoni (then with IFC), who was a close friend of Roger Boka, encouraged Boka to start a merchant bank. At this time Makoni was working at setting up his own NMB. It is possible that, by encouraging Boka to start, he was trying to test the waters. Then Mzwimbi was seeing out the last of his contract at PTA. Boka approached him at the recommendation of Julias Makoni and asked him to help set up United Merchant Bank (UMB). On careful consideration, the banker in Mzwimbi accepted the offer. He reasoned that it would be an interesting option and at the same time he did not want to turn down another opportunity. He worked on the project with a view to its licensing but quit three months down the line. Some of the methods used by the promoter of UMB were deemed less than ethical for the banking executive, which led to disagreement. He left and accepted an offer from Econet to help restructure its debt portfolio.

Bankers' Banks- The Role of Central Banks in Banking Crises

Central banks are relatively new inventions. An American President (Andrew Jackson) even cancelled its country's central bank in the nineteenth century because he did not think that it was very important. But things have changed since. Central banks today are the most important feature of the financial systems of most countries of the world.
Central banks are a bizarre hybrids. Some of their functions are identical to the functions of regular, commercial banks. Other functions are unique to the central bank. On certain functions it has an absolute legal monopoly.
Central banks take deposits from other banks and, in certain cases, from foreign governments which deposit their foreign exchange and gold reserves for safekeeping (for instance, with the Federal Reserve Bank of the USA). The Central Bank invests the foreign exchange reserves of the country while trying to maintain an investment portfolio similar to the trade composition of its client - the state. The Central bank also holds onto the gold reserves of the country. Most central banks have lately tried to get rid of their gold, due to its ever declining prices. Since the gold is registered in their books in historical values, central banks are showing a handsome profit on this line of activity. Central banks (especially the American one) also participate in important, international negotiations. If they do not do so directly - they exert influence behind the scenes. The German Bundesbank virtually dictated Germany's position in the negotiations leading to the Maastricht treaty. It forced the hands of its co-signatories to agree to strict terms of accession into the Euro single currency project. The Bunbdesbank demanded that a country's economy be totally stable (low debt ratios, low inflation) before it is accepted as part of the Euro. It is an irony of history that Germany itself is not eligible under these criteria and cannot be accepted as a member in the club whose rules it has assisted to formulate.
But all these constitute a secondary and marginal portion of a central banks activities.
The main function of a modern central bank is the monitoring and regulation of interest rates in the economy. The central bank does this by changing the interest rates that it charges on money that it lends to the banking system through its "discount windows". Interest rates is supposed to influence the level of economic activity in the economy. This supposed link has not unequivocally proven by economic research. Also, there usually is a delay between the alteration of interest rates and the foreseen impact on the economy. This makes assessment of the interest rate policy difficult. Still, central banks use interest rates to fine tune the economy. Higher interest rates - lower economic activity and lower inflation. The reverse is also supposed to be true. Even shifts of a quarter of a percentage point are sufficient to send the stock exchanges tumbling together with the bond markets. In 1994 a long term trend of increase in interest rate commenced in the USA, doubling interest rates from 3 to 6 percent. Investors in the bond markets lost 1 trillion (=1000 billion!) USD in 1 year. Even today, currency traders all around the world dread the decisions of the Bundesbank and sit with their eyes glued to the trading screen on days in which announcements are expected.
Interest rates is only the latest fad. Prior to this - and under the influence of the Chicago school of economics - central banks used to monitor and manipulate money supply aggregates. Simply put, they would sell bonds to the public (and, thus absorb liquid means, money) - or buy from the public (and, thus, inject liquidity). Otherwise, they would restrict the amount of printed money and limit the government's ability to borrow. Even prior to that fashion there was a widespread belief in the effectiveness of manipulating exchange rates. This was especially true where exchange controls were still being implemented and the currency was not fully convertible. Britain removed its exchange controls only as late as 1979. The USD was pegged to a (gold) standard (and, thus not really freely tradable) as late as 1971. Free flows of currencies are a relatively new thing and their long absence reflects this wide held superstition of central banks. Nowadays, exchange rates are considered to be a "soft" monetary instrument and are rarely used by central banks. The latter continue, though, to intervene in the trading of currencies in the international and domestic markets usually to no avail and while losing their credibility in the process. Ever since the ignominious failure in implementing the infamous Louvre accord in 1985 currency intervention is considered to be a somewhat rusty relic of old ways of thinking.
Central banks are heavily enmeshed in the very fabric of the commercial banking system. They perform certain indispensable services for the latter. In most countries, interbank payments pass through the central bank or through a clearing organ which is somehow linked or reports to the central bank. All major foreign exchange transactions pass through - and, in many countries, still must be approved by - the central bank. Central banks regulate banks, licence their owners, supervise their operations, keenly observes their liquidity. The central bank is the lender of last resort in cases of insolvency or illiquidity.
The frequent claims of central banks all over the world that they were surprised by a banking crisis looks, therefore, dubious at best. No central bank can say that it had no early warning signs, or no access to all the data - and keep a straight face while saying so. Impending banking crises give out signs long before they erupt. These signs ought to be detected by a reasonably managed central bank. Only major neglect could explain a surprise on behalf of a central bank.

Spank the Bank! Confronting the Biggest Bully in the Neighborhood!

It is an unspoken reality that for those of us making our living in the real estate industry, we unfortunately continue to have to work in the "short sale" arena. I say unfortunately for a number of reasons, but first and foremost is the fact that as realtors we see firsthand how traumatic it is for the homeowner and the buyer when a short sale transaction becomes a casualty of disorganized corporate banking staff and understaffed bank short sale offices.
The issues of the short sale "nightmare" were, and continue to be, promulgated almost specifically by the banks themselves. It has created a growing and aggressive stealth movement towards forcing the banks to start being good neighbors with the real estate industry.
Anecdotally, in two very recent short sale transactions with major banks, (the lien-holders of the respective properties), none of the professionals on the realty side involved with the transaction, (realtors, title agents or closing coordinators), could get anyone at the bank's short sales offices to respond to communications or queries of any sort. Phone calls, emails, faxes, and even an outreach by courier... "Holy Foreclosure Batman, I smell a rat!"

In one case the short sale price had been approved by the bank, the buyer had made a full price offer, the contract was fully executed, the home was vacant, (on a very short leash for foreclosure), and we still could not get the bank to respond! For two months we could get no answer of any sort from the bank or their representatives! It is an extremely unfortunate, but well known issue, (there is no doubt that all of the realtors out there are shaking their heads with the same nightmare stories of their own)... it's got to stop!
Approaching the point at which this particular home was about to go on the chopping block at the county courthouse, the selling agent, (and myself on the buyers side), decided to take matters into our own hands and become more "proactive" at getting the bank's reps to respond. We made a very aggressive effort to reach out to the people at the bank's senior management level who COULD make a decision, while also convincing them of the need to respond.

Drafting an email to the CEO of the bank, along with a number of members of his board of Directors, VP of Short Sales, and numerous other banking officials, we started moving forward in short order to alert these officers to the shenanigans of their local office. After looking over that email with a fine tooth comb and making a number of changes, the email was sent to all of the bank officials and board members, copying the local bank short sale reps, (remember, the ones who refused to respond to our queries).
In a matter of hours, literally, after sending that email, we had numerous calls from the bank CEO's office wondering why we were having problems and what they could do to help. Due to this "re-energized" focus on this case we ended up closing the sale only days later... after two months of senseless inactivity and non-response on the part of the bank office assigned to handle the case.

This particular situation ended up working out for the buyer and seller, but unfortunately it was just one of thousands of these cases occurring daily nationwide. The big banks and their short sales offices literally BULLY everyone involved in a short sale transaction, from realtors to title and closing agents, to the homeowners themselves! Why?... well, for the same reason a dog chases its tail, because they can! They know they can just refuse to answer any queries in reference to a particular transaction, and there is very little, if anything, that anyone in the real estate industry could do about it, (up till now). Think about it. What other phone numbers would you call? What other fax number would you use? What other contact point do you have? You all know the drill, and it's not pretty.
Remember how we hated bullies in grade school? To be more specific, who do you know that doesn't hate a bully? I always have and always will. Realtors and others in industries dependent on real estate sales must come together as a group to put pressure on our elected representatives to create better legislation to force banks to behave! We cannot continue to allow the biggest bullies on the real estate block to continue making their own rules to the detriment of the rest of the country and entire industries.
Obviously, the banking industry hasn't received the message loud and clear that the citizens of this country are sick and tired of the crass, unresponsive way in which banks are handling their affairs... and specifically in this case, the administrative issues and transactions with short sales.

Short sale homeowners are certainly not happy that big corporate banks earning billions of net profit per quarter, are having their homes foreclosed on, in many cases, due to the shoddy, unprofessional work ethic, and haughty bank employees simply refusing to respond to realtors, title agents, closing coordinators and homeowners.
Obviously not all bank employees are "haughty" and / or have a poor work ethic. Unfortunately, I haven't worked a short sale yet, nor have I spoken with a realtor who doesn't agree that in almost every case at some point in the game one of those "special" bank employees ends up being an integral part of why the transaction is not moving forward.